You think you are ready to take the plunge into the housing
market, but how can you be sure? Or you feel cramped in
your cottage and ready to trade up for more space, but how
much more can you afford to bite off?
Before spending time looking for that dream house, examine
your finances.
Numerous Web sites offer interactive calculators to provide
a quick glimpse of your payment capabilities. One Web site,
www.mortgage-calc.com, goes beyond a simple mortgage tool
to provide Rent vs. Buy, How Much Can I Afford? and How
Much Can I Borrow? calculators.
The advice from the Federal Reserve is to do extensive research and shop around for the best deal. Do not feel compelled
to accept the first proposal you receive; your
commitment to your mortgage might last from 15 to 30 years.
Websites such as www.bankrate.com, can be used to initially
identify the best interest rates available locally. Contact
several financial institutions.
The Federal Reserve suggests using its Mortgage Shopping
Worksheet, www.federalreserve.gov/pubs/mortgage/mortb_1.htm, to evaluate proposals and ensure you are aware of all related
fees. Or if you prefer not to do the legwork yourself, turn
to a mortgage broker to whittle down the options. While refinancing
might be an option later, it may come with penalties.
The terms are included in your loan documents, so be sure
you understand them.
The Federal Reserve suggests negotiating for the best rate
and asking if some fees might be waived. Once you are satisfied,
ask about obtaining a written lock-in of the terms and
rates while the loan is being processed.
Many of the homeowners facing foreclosures throughout
the country today signed what appeared to be the best deal
-- an ARM might feature a lower interest rate or offer interest-
only payments for a certain time period, but the Federal
Reserve devotes numerous publications to warning about the
dangers of “payment shock.”
Before signing, be aware how much monthly payments might
balloon later. Can you really count on a promotion to cover that
amount? Building equity is an investment in your long-range financial
security. Do you really want to continue paying out
money without accumulating substantial equity in your home?
News of failed loans should not frighten you from entering
the housing market. Fixed-rate mortgages let you know
what you commitment is. Aside from changes in tax rates,
generally resulting from increases in the appraised value of
your home, your monthly payments remain the same
throughout the whole 15-to-30-year mortgage.
With fixed rates hovering historically low, around the 6-
percent level, these loans represent a bargain. “With the
drop in interest rates, now is the very best time you could
ever buy a home,” says Becky Oliver, executive vice president
of the Greater San Antonio Builders Association.
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